Glossary · legal

Guarantor

Also called personal guarantor, co-signer, surety.

The individual or entity who agrees to answer for a business's obligation if the business does not, putting personal assets behind a commercial debt.

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What it means

Signing as guarantor removes the wall between the company and the person. The business borrows; the guarantor promises that if the business fails to perform, the creditor may look to them personally. In small-business funding this is close to universal — banks, SBA lenders, equipment lessors, factors and cash advance funders all require it, and the SBA requires a guaranty from every owner at or above a stated ownership threshold.

What kind of guaranty

The label on the document matters less than the trigger and the scope.

  • Payment guaranty: the guarantor owes the debt on default. Most are guaranties of payment, not of collection, which means the creditor can sue the guarantor without first suing the business or liquidating collateral
  • Validity guaranty: common in factoring and asset-based lending. The guarantor does not guarantee the debtor will pay; they guarantee the collateral is real — that the invoices represent genuine delivered goods, that the receivables are not pledged elsewhere. Fraud, not credit risk
  • Performance guaranty: used in merchant cash advance. The guarantor is not liable simply because sales fell, but is fully liable if the merchant breaches specified covenants
  • Limited guaranty: capped at a dollar amount, a percentage, or a time period. Rare in this market and worth reading carefully, because caps often exclude interest, costs and attorney's fees

Getting out

A guaranty does not end when you sell your interest, resign as an officer, or divorce. It ends when the creditor signs a written release, or when the guaranteed obligation is fully discharged. Most guaranties are continuing and cover future advances as well as the current one.

Where this one catches people

"No personal guarantee required" in merchant cash advance marketing almost always means a performance guaranty rather than none. Read the listed breaches: they typically include changing bank accounts, changing processors, blocking or stopping the debit, taking additional funding, and misrepresenting information on the application. Those are precisely the actions a merchant takes when cash gets tight — so the guaranty converts from dormant to live at exactly the moment it matters, and the guarantor then owes the entire remaining balance.

Where you will meet this term

Merchant Cash Advance Working Capital Term Loan Business Line of Credit SBA Loan Equipment Financing Invoice Financing

Read next

Confession of judgment (COJ)A pre-signed admission of liability that lets a funder obtain a court judgment on default without suing you, … GuarantyThe separate contract in which a third party promises a creditor they will perform if the primary obligor doe… Joint and several liabilityEach obligor is liable for the entire debt, not a share of it, so the creditor may collect the whole balance … LiabilityAn obligation to pay or perform — used in three distinct senses across a funding file: the balance sheet line… Limited liability company (LLC)An entity structure that shields owners from business debts by default — a shield that a personal guaranty vo… Personal guarantee (PG)An individual's separate promise to pay the business's obligation out of personal assets, enforceable even af…

Guarantor — common questions

What does guarantor mean?

The individual or entity who agrees to answer for a business's obligation if the business does not, putting personal assets behind a commercial debt.

Where does guarantor catch people out?

"No personal guarantee required" in merchant cash advance marketing almost always means a performance guaranty rather than none. Read the listed breaches: they typically include changing bank accounts, changing processors, blocking or stopping the debit, taking additional funding, and misrepresenting information on the application. Those are precisely the actions a merchant takes when cash gets tight — so the guaranty converts from dormant to live at exactly the moment it matters, and the guarantor then owes the entire remaining balance.

Is guarantor the same as an interest rate?

Guarantor is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.

Which products does guarantor apply to?

Merchant Cash Advance, Working Capital, Term Loan, Business Line of Credit, SBA Loan, Equipment Financing, Invoice Financing.

Is there a worked example of guarantor?

Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.

What else should I read alongside guarantor?

Confession of judgment, Guaranty, Joint and several liability, Liability, Limited liability company.

Has this definition been checked?

Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.